The Effect of Decree 40: Foreigners Are Banned from the Human Resources Arena in Indonesia

decree 40

By Douglas G. Smith

Foreign and foreign-owned enterprises represent some of the largest employers in Indonesia. Accordingly, some foreign companies expressed consternation when, on February 29, 2012, the country’s Ministry of Manpower and Transmigration issued Decree No. 40 of 2012 on Certain Positions that Are Restricted for Foreign Workers (the “Decree”). The Decree, among other things, lists 19 positions that cannot be held by non-Indonesian nationals, all related to the field of human resources.

Actually, the Decree should not have come as a surprise. Article 46(1) of Law No. 13 of 2003 (March 25, 2003) on Manpower, as amended by Constitutional Court Decision No. 012/PUU-I/2003 of October 28, 2004 (the “Manpower Law”), already stipulated a prohibition on foreign workers holding a position “managing personnel and/or certain positions.” Article 46(2) of the Manpower Law goes on to provide that those positions are to be determined by and specified in a Ministerial Decision or Decree.

The affected positions are set out below:

No. Name of Position
English Indonesian
1. Personnel Director Direktur Personalia
2. Industrial Relations Manager Manajer Hubungan Industrial
3. Human Resources Manager Manajer Personalia
4. Personnel Development Supervisor Supervisor Pengembangan Personalia
5. Personnel Recruitment Supervisor Supervisor Perekrutan Personalia
6. Personnel Placement Supervisor Supervisor Penempatan Personalia
7. Employee Career Development Supervisor Supervisor Pembinaan Karir Pegawai
8. Personnel Declare Administrator Penata Usaha Personalia
9. Chief Executive Office [sic] Kepala Eksekutif Kantor
10. Personnel and Career Specialist Ahli Pengembangan Personalia dan Karir
11. Personnel Specialist Spesialis Personalia
12. Career Advisor Penasehat Karir
13. Job Advisor Penasehat Tenaga Kerja
14. Job Advisor and Counseling Pembimbing dan Konseling Jabatan
15. Employee Mediator Perantara Tenaga Kerja
16. Job Training Administrator Pengadministrasian Pelatihan Pegawai
17. Job Interviewer Pewawancara Pegawai
18. Job Analyst Analis Jabatan
19. Occupational Safety Specialist Penyelenggara Keselamatan Kerja Pegawai

In issuing the Decree the Ministry emphasized that it was looking to develop local Indonesian expertise in the human development field. It also noted that the Decree was not retroactive in application and accordingly would not, in its view, have a big impact. It also cited the familiarity and sensitivity of Indonesian nationals in dealing with local employees in a manner consistent with local cultural norms. It went on to state that, in fact, many foreign firms already employed Indonesians in these positions for exactly the reasons cited by the Ministry.

Critics immediately raised a number of concerns, perhaps the most urgent being the inclusion of the term “kepala eksekutif kantor,” a common translation of the term “Chief Executive Officer,” on the prohibited list. The Ministry was quick to alleviate this concern by stating that for the purposes of the Decree the term “kepala eksekutif kantor” would be interpreted as meaning “Head of Office” or “Office Manager,” consistent with the Ministry’s intention to limit its application to persons dealing directly with front-line workers.

Note that under the Indonesian Company Law the chief officer of a company is its President Director and the term Chief Executive Office has no legal meaning. The Ministry clarified that this position is still open to foreigners and that the President Director, together with the Board of Directors and other senior officers, may still direct overall employment strategy for a company.

Critics have also argued that the changes would impact direct foreign investment and stifle the inflow of good foreign workers. As of 15 months from the date of the Decree there has been no direct evidence put forward to substantiate these concerns in booming Indonesia. Rather, the evidence appears to be, as some industry figures have pointed out, that the Decree simply served to codify a practice of using Indonesians in these human resources positions as a matter of practice.

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